Extending credit to commercial customers can be a win-win situation for your business and your customers. It gives you a chance to build what could be a long-standing and lucrative relationship, and it enables your customer to buy more from you through commercial debt. However, the credit is a form of a loan, and the money isn’t yours until it’s in your bank account.
A credit application provides a path for mitigating risk, even though it does not eliminate it. Instead, it establishes rules between you (the seller) and your customer (the buyer), so both of you understand what’s expected. Ultimately, the credit application benefits you, as it helps you decide whether to extend credit and how much you’re willing to give the buyer. Here are three reasons commercial credit applications should be standard business practice.
1. Gather Data About Your Customers
The credit application is an ideal way to collect valuable information about your customers, especially before you’ve had a chance to build a relationship with them. This information is helpful as you decide how much credit to extend. The application should include basic details like physical and mailing addresses, owners and their representatives, bank names and account numbers, and trade references. You should have this information in your customer database, and it helps you do commercial background checks necessary to help decide how much credit you’re willing to give them.
2. Give Your Company Leverage If the Customer Defaults
Defaults happen. Although you may not want to enter an agreement with a customer assuming they won’t be able to pay back what they owe you, you should have a plan to handle the situation if it does happen. You have an opportunity to determine how you want to settle outstanding debt, which lets you choose what’s best for the company. For example, consider an arbitration clause so you can avoid costly litigation. Specify terms like collection fees and attorney’s fees the customer will pay if they default on the loan.
3. Protect Cour Company Against Risk
Extending credit to a customer carries a degree of risk, but you can still protect your company by vetting your new customers. If you asked for trade references on the application, you could contact those vendors. Ask about the customer’s payment history, specifically whether there are times of the year when they are more likely to fall behind on payments. Confirm with the bank that they have an account and if it’s in good standing. Check online reviews to see what others say about the company’s dependability.
Your customers are a valuable part of your business. Protect the company and your relationship with them by insisting on a commercial credit application.
